Judicial foreclosure is a method for lenders to exercise their right to sell property after the borrower defaults on the loan. Judicial foreclosure differs from non-judicial foreclosure because of the level that the courts become involved in the process.
In judicial foreclosure the courts are involved in every step of the process. After default, the lender files a complaint for mortgage foreclosure. This is an in rem proceeding, that is, the lawsuit only pertains to the rights against the property, not against the person who owns the property (the lender needs to file a separate lawsuit for that purpose).
After filing the lawsuit, the sheriff or a private process server must personally serve the homeowner, who then has a set period of time to answer (Delaware 20 days; Pennsylvania 30 days). If the homeowner doesn’t answer (this is usually the case) or if the homeowner does not assert a legitimate defense, the court will enter a judgment for foreclosure.
At that point, the court will issue a Writ of Execution directing the sheriff to conduct a sale of the property. The sheriff will conduct a pubic auction. At that event, the lender will have the right to do a “credit bid,” bidding up to the amount due to pay for the property. This way, the lender will not have to pay cash to obtain the property. Other bidders, if there are any who are trying to get a bargain at the foreclosure sale, will have to pay cash.
After the sale the lender will usually still have money owed on the loan. This is called a “deficiency”, and the lender in a judicial foreclosure state will have to file a separate lawsuit for that amount.
In a non-judicial foreclosure state, the courts are somewhat less involved in the process, depending upon the law of the state. In any event, the lender will appoint its own auctioneer to make the sale.
Pennsylvania and Delaware are judicial foreclosure states, while Maryland and Virginia are non-judicial foreclosure states.